Official measures calm sentiment, as securities firms lead rebound

China's A-share market extended its rebound on Monday, with securities firms leading the recovery, after a slew of government measures unveiled from Friday onward eased concerns relating to stock-based collateral.

The benchmark Shanghai Composite Index jumped by 4.09 percent, or more than 100 points, to close at 2654.88 points, its biggest single day gain since March 2016.

The smaller Shenzhen Component Index closed 4.89 percent higher at 7748.82 points. The ChiNext Index, China's NASDAQ-style board of growth enterprises, surged 5.20 percent to 1314.94 points.

A total of 3,458 companies' stocks closed higher on Monday, while only 15 stocks dropped in value. Combined turnover on the two mainland bourses - in Shanghai and Shenzhen - stood at 422 billion yuan ($60.79 billion), the highest in nearly three months.

Before the rebound, the Shanghai Composite Index had dropped by 11.87 percent since the beginning of October.

"The recent slump in the A-share market was mainly driven by weak investor sentiment, which was closely related to stock-based collateral risks," said Xu Gao, chief economist with China Everbright Securities.

The risk-easing measures regulators have released since Friday, as well as regulators' determination to solve the problem, could significantly rally market sentiment, Xu said.

Stock-based collateral refers to shares being pledged as collateral for loans. The recent broad decline in the stock market highlighted risks of large-scale selling of pledged stocks by some listed companies' lenders.

On Friday, China's three top financial regulators promised a slew of measures to stabilize the market, especially to mitigate stock-based collateral-related risks. As a means to quickly implement the measures, the Asset Management Association of China announced on Sunday it will provide convenience for private equity funds helping with listed companies' liquidity.

The jump in securities firms led the rebound on Monday, with the sub-index leaping by the daily limit of 10 percent as a result of easing concerns over stock-based collateral risk, said Hong Rong, founder of investor education platform Hongda Education and an MBA tutor with the Shanghai Advanced Institute of Finance.

"If not resolved, the risk could cause major losses for securities firms," he said, adding that previous sharp slumps in the sector also contributed to the surge on Monday.

Other financial institutions also posted strong performances, with a sub-index tracking insurers and other financial service providers except securities firms soaring by 7.61 percent.

Ping An Insurance (Group) Co of China Ltd, one of China's biggest integrated financial services providers, saw its shares go up by 3.52 percent and its turnover hit 10.96 billion yuan, the highest among all A shares on Monday.

Hong said the market has recovered from the previous irrational sell-off and will perform in response to regulators' practical measures, economic fundamentals and listed companies' performances.